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Book Building Method in Security Market of Bangladesh

Book Building Method in Security Market of Bangladesh

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Published by Zubairia Khan
Book Building Method used in Security Market of Bangladesh. This is collected from the Dhaka Stock Exchange.
Book Building Method used in Security Market of Bangladesh. This is collected from the Dhaka Stock Exchange.

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Published by: Zubairia Khan on Aug 24, 2010
Copyright:Attribution Non-commercial


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Book Building Method in Security Market of Bangladesh
Prerequisites of an issuer for becoming eligible for book-building method: 
An issuer may determine issue price of its security being offered followingbook-building method (i.e. price discovery process) subject to compliance withthe following:(a) The issuer
 (i) must have at least Tk. 30 crore net-worth;(ii) shall offer at least 10% shares of paid up capital (including intendedoffer) or Tk. 30 crore at face value, whichever is higher;(iii) shall be in commercial operation for at least immediate last three years;(iv) shall have profit in two years out of the immediate last three completedfinancial year;(v) shall have no accumulated loss at the time of application;(vi) shall be regular in holding annual general meeting;(vii) shall audit at least its latest financial statements by a firm of charteredaccountants from the panel of auditors of the Commission;(viii) shall appoint separate person as issue manager and registrar to theissue for managing the offer; and(ix) shall comply with all requirements of these Rules in preparingprospectus.(b) The Commission, if it deems appropriate for the interest of investor ordevelopment of capital market, may exempt or relax any of the aboveprerequisites.
Price discovery for determining indicative price: 
 The price discovery process for determining indicative price of security willinvolve the following institutional investors registered with or approved by the Commission in this regard:(a) Merchant bankers excepting the issue manager concerned to theproposed issue;(b) Foreign institutional investors registered with or approved by theCommission;(c) Recognized pension funds and provident funds;
(d) Bank and non-bank financial institutions under regulatory control of Bangladesh Bank;(e) Insurance companies regulated under Insurance Act, 1938 (Act No. IV of 1938);(f) Institutional venture capital and institutional investors registered withor approved by the Commission;(g) Stock Dealer registered with the Commission; and(h) Any other artificial juridical person permitted by the Commission forthis purpose.
Procedures to be followed for determining price under book-building method: 
(a) Issuer shall invite for indicative price offer from the eligible institutionalinvestors through proper disclosure, presentation, document, seminar,road show, etc;(b) Issuer in association with issue manager and eligible institutional investorsshall quote an indicative price in the prospectus and submit the same to theCommission with copy to the stock exchanges;(c) Such indicative price range shall be determined as per price indicationsobtained from at least five eligible institutional investors covering at leastthree different categories of such investors;(d) Rationale for the indicative price must be included in the prospectus
theissuer is required to disclose in detail about the qualitative andquantitative factors justifying the indicative price;(e) The indicative price shall be the basis for formal price building with anupward and downward band of 20% (twenty percent) of indicative pricewithin which eligible institutional investors shall bid for the allocatedamount of security;(f) Eligible institutional investors bidding shall commence after getting consentfrom the Commission for this purpose;(g) If institutional quota is not cleared at 20% (twenty percent) below indicativeprice, the issue will be considered cancelled unless the floor price is furtherlowered within the face value of security :Provided that, the issuer·s chance to lower the price shall not be more thanonce;(h) Prospectus will have to be posted on the Websites of the Commission, stockexchanges, issue manager and issuer at least two weeks prior to the startof the bidding to facilitate investors to know about the company and allaspect of offering ;
(i) No institutional investor shall be allowed to quote for more than 10% (tenpercent) of the total security offered for sale, subject to maximum of 5 (five)bids ;(j) Institutional bidding period will be 3 to 5 (three to five) working days whichmay be changed with the approval of the Commission ;(k) The bidding will be handled through a uniform and integrated automatedsystem of the stock exchanges, or any other organization as decided by theCommission, especially developed for book building method ;(l) The volume and value of bid at different prices will be displayed on themonitor of the said system without identifying the bidder ;(m) The institutional bidders will be allotted security on pro-rata basis at theweighted average price of the bids that would clear the total number of securities being issued to them;(n) Institutional bidders shall deposit their bid with 20% (twenty percent) of theamount of bid in advance to the designated bank account and the restamount to settle the dues against security to be issued to them shall bedeposited within 5 (five) working days prior to the date of openingsubscription for general investors ;(o) In case of failure to deposit remaining amount that is required to be paid by institutional bidders for full settlement of the security to be issued in theirfavor, 50% (fifty percent) of bid money deposited by them shall be forfeitedby the Commission. The securities earmarked for the bidder who defaultedin making payment shall be added to the general investor quota.(p) General investors, which include mutual funds and NRBs, shall buy at thecut-off price ;(q) There shall be a time gap of 25 (twenty five) working days or as may bedetermined by the Commission between closure of bidding by eligibleinstitutional investors and subscription opening for general investors ;(r) Subscription for general investors shall remain open for the period asspecified by the Commission;(s) General investors shall place their application through banker to the issue;and(t) All application money shall be kept in a separate escrow account openedwith a designated bank with prior intimation to the Commission. Issuerwill not be allowed to utilize such money until all the process of issue iscompleted and Commission·s consent to this effect is obtained.

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